Pay TV: Back In Black

3/21/2011 12:01 AM Eastern

By: By Mike Farrell

Thanks to strong gains
in telco video and satellite-TV
customers, the pay TV sector
broke into the black in the fourth
quarter, gaining a total of 65,000
subscribers and silencing over-the-top video fears for at least the
next three months.

According to data compiled
by SNL Kagan, the pay TV sector
ended the quarter with a total of
100.1 million customers. Cable
operators lost a collective 526,000
video customers in the period —
better than the 741,000 lost in the
third quarter — according to Kagan.
That improvement, coupled
with a gain of 458,000 telco video
subscribers and 133,000 additional
satellite customers, pushed
the sector into positive territory.

The gain comes as welcome
news after two straight quarters
of subscriber losses for the sector,
the first time that has happened in its history. According to
Kagan, the pay TV sector lost 216,000 customers in the second
quarter of 2010 and 119,000 in the third quarter. That set
some critics speculating
on whether
the losses were
due to customers
disconnecting
their pay TV subscriptions
in favor
of free content on
the Internet.

While the
over-the-top debate
rages on,
some analysts
said the positive
showing offers
some needed encouragement.

“This has already been
reflected, somewhat, in the waning fears of OTT competition,
but is also aided by the unemployment rate
stabilization and slight improvements starting to take
place — in other words, additions to the pay TV market
are highly correlated with the economy (unemployment
and housing formation),” said Miller Tabak media analyst
David Joyce.

In its report, SNL Kagan
said the growth is likely
due to improving housing
trends and a reduction in
churn from customers acquired
during the digital
transition in 2009. Still, Kagan
said pay TV sub growth
at 0.2% lags gains in occupied
housing units in the quarter.

“Despite the inconclusive
trend lines between sub
adds and sub penetration
rates, the fourth-quarter
gains do reinforce the importance
of multichannel
video and we project more
stable macroeconomic
conditions will guide the
way for absolute video sub
adds, if not gains in penetration,”
Kagan said in a
statement. “However, the
greater underlying issue
remains more screens and
alternative platforms competing
for users’ attention than ever before.

In a separate report, Kagan said last week that premium-
channel subscriptions, once thought to be on the decline
as the economy softened and customers looked to
cut costs, appear to be on the uptick. According to Kagan,
subscribers to the three top premium channels (HBO,
Showtime and Starz) rose in the fourth quarter.

According to Kagan, HBO, as expected, lost about
680,000 customers in 2010. That was more than offset,
though, by strong gains at Showtime (up 1.8 million) and
Starz (up 1.3 million). Kagan projects that premium subscribers
will continue to rise in 2011.

“Going forward, some aggressive marketing campaigns
and more attention to the category in general from
operators could generate significant numbers in the next
year,” SNL Kagan senior industry analyst Deana Myers
said in a statement. “Also at play is original programming,
which appears to be helping maintain — and possibly
growing — subs.”